AB991: Bill Text

AB991,6,23 chapter 428

AB991,6,25 subchapter ii high-cost home loans

AB991,7,1 428.201 Definitions. In this subchapter:

AB991,7,3 (1) "Affiliate" means a person that controls, is controlled by, or is under common control with another person.

AB991,7,8 (2) "Bona fide loan discount points" means amounts paid by a customer for the purpose of reducing, and which do reduce, the interest rate or time-price differential applicable to a high-cost home loan in an amount and manner that is reasonably consistent with established industry norms and practices for secondary mortgage market transactions.

AB991,7,10 (3) "Customer" means an individual who seeks or acquires a high-cost home loan for personal, family, or household purposes.

AB991,7,11 (4) "Department" means the department of financial institutions.

AB991,7,13 (5) (a) Except as provided in par. (c), "high-cost home loan" means a loan that is made to a customer and that satisfies all of the following conditions:

AB991,7,16 1. The principal amount of the loan does not exceed the lesser of the maximum amount allowable in order to be eligible for purchase by the Federal National Mortgage Association or $300,000.

AB991,7,22 2. The loan is secured by a security interest in a manufactured home, as defined in s. 101.91 (2), which is or will be occupied by the customer as the customer's principal dwelling or is secured by a mortgage or deed of trust on real estate upon which there is or will be located a structure designed principally for occupancy of from 1 to 4 families which is or will be occupied by the customer as the customer's principal dwelling.

AB991,7,23 3. The loan satisfies par. (b).

AB991,7,25 (b) A loan is a high-cost home loan only if at least one of the following applies to the loan:

AB991,8,2 1. The annual percentage rate of the loan exceeds the annual percentage rate specified under 15 USC 1602 (aa) (1) (A), as adjusted under 15 USC 1602 (aa) (2).

AB991,8,9 2. Except as otherwise provided in this subdivision, the total points and fees payable by the customer at or before the loan closing under the loan exceed 5 percent of the total loan amount if the total loan amount is $20,000 or more, or the lesser of 8 percent of the total loan amount or $1,000 if the total loan amount is less than $20,000. For purposes of this subdivision, the following amounts shall be excluded from the calculation of the total points and fees payable by the customer, as applicable:

AB991,8,15 a. The total amount of bona fide loan discount points, up to 2, that are payable by the customer in connection with the loan transaction, but only if the interest rate from which the loan's interest rate will be discounted does not exceed by more than 1 percent the required net yield for a 90-day standard mandatory delivery commitment for a reasonably comparable loan from the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, whichever is greater.

AB991,8,21 b. The total amount of bona fide loan discount point, up to one, payable by the customer in connection with the loan transaction, but only if the interest rate from which the loan's interest rate will be discounted does not exceed by more than 2 percent the required net yield for a 90-day standard mandatory delivery commitment for a reasonably comparable loan from the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, whichever is greater.

AB991,8,25 c. Prepayment fees and penalties which may be charged or collected under the terms of the loan, up to 1 percent of the amount prepaid, provided that the loan does not permit the lender to charge or collect any prepayment fees or penalties more than 30 months after the loan closing; or

AB991,9,3 3. The customer may be required, under the terms of the loan, to pay prepayment fees or penalties more than 30 months after the date on which the loan is made.

AB991,9,6 4. The customer may be required, under the terms of the loan, to pay prepayment fees or penalties which exceed, in the aggregate, more than 2 percent of the amount prepaid.

AB991,9,8 (c) "High-cost home loan" does not include an open-end credit plan or a reverse mortgage transaction.

AB991,9,10 (6) "Lender" means a person who regularly makes or arranges high-cost home loans.

AB991,9,12 (7) "Obligor" means a customer, cosigner, or guarantor under a high-cost home loan.

AB991,9,14 (8) (a) Except as provided in par. (b), "points and fees" means all of the following:

AB991,9,16 1. All items included in the definition of "finance charge" under 12 CFR 226.4 (a).

AB991,9,17 2. All items described in 12 CFR 226.4 (b) (1) to (10).

AB991,9,18 3. All compensation paid directly by the customer to a mortgage broker.

AB991,9,20 4. All prepayment fees and penalties that may be charged or collected under the terms of the high-cost home loan.

AB991,9,21 (b) "Points and fees" does not include any of the following:

AB991,9,22 1. Interest and time-price differential.

AB991,9,24 2. All items described in 12 CFR 226.4 (c) to (e), except items described in 12 CFR 226.32 (b) (1) (iii).

AB991,10,2 3. Fees for tax payment services and fees for flood certification, if paid to a person other than the creditor or an affiliate of the creditor.

AB991,10,3 4. Attorney fees, except fees described in 12 CFR 226.4 (a) (ii).

AB991,10,4 (9) "Total loan amount" means the loan principal, less points and fees.

AB991,10,9 428.202 Prohibitions on and requirements of lenders. (1) Call provision. No lender may make a high-cost home loan to a customer that permits the lender or an assignee of the loan to demand payment of the outstanding balance before the original maturity date, except that a covered loan may permit a lender or assignee to so demand as a result of any of the following:

AB991,10,10 (a) The customer's failure to make payments required under the loan.

AB991,10,12 (b) A provision in the loan documents permitting the lender or assignee to make such a demand after the sale of real property that is pledged as security for the loan.

AB991,10,14 (c) Any other provision of the loan documents that is unrelated to the payment schedule.

AB991,10,20 (2) Balloon payment. Except as otherwise provided in this subsection, no lender may make a high-cost home loan to a customer that requires, or that permits the lender or an assignee of the loan to require, a payment that is more than twice as large as the average of all earlier scheduled payments. This subsection does not apply to a loan under which the payment schedule is adjusted to account for seasonal or irregular income of the customer.

AB991,10,22 (3) Negative amortization. No lender may make a high-cost home loan to a customer with a payment schedule that causes the principal balance to increase.

AB991,10,25 (4) Increased interest rate. No lender may make a high-cost home loan to a customer that imposes or permits the lender or an assignee of the loan to impose an increase in the interest rate as a result of the customer's default.

AB991,11,3 (5) Advance payments. No lender may make a high-cost home loan to a customer that includes a payment schedule that consolidates more than 2 scheduled payments and pays them in advance out of the proceeds of the loan.

AB991,11,6 (6) Modification or deferral fees. No lender may charge a customer any fees to modify, renew, extend, or amend a high-cost home loan or to defer any payment due under the terms of a high-cost home loan.

AB991,11,9 (7) Counselor approval. No lender may make a high-cost home loan without first receiving certification from a counselor approved by the department that the customer has received counseling on the advisability of the loan.

AB991,12,2 (8) Repayment ability. No lender may make a high-cost home loan unless the lender reasonably believes at the time that the loan is consummated that an obligor, or multiple obligors collectively, will be able to make the scheduled payments to repay the loan. In making its determination under this subsection, a lender shall consider each obligor's current and expected income, current obligations, employment status, and other financial resources, other than the customer's equity in the dwelling that is pledged as security for the loan. An obligor shall be considered to be able to make the scheduled payments to repay the loan under this subsection if, at the time that the loan is consummated, the obligor's total monthly debts, including amounts that will be owed under the loan, do not exceed 50 percent of the obligor's monthly gross income as verified by the credit application, the obligor's financial statement, a credit report, financial information provided to the lender by or on behalf of the obligor, or any other reasonable means. This subsection does not require a lender to consider an obligor to be unable to make the scheduled payments to repay the loan solely because, at the time that the loan is consummated, the obligor's total monthly debts, including amounts that will be owed under the loan, exceed 50 percent of the obligor's monthly gross income.

AB991,12,4 (9) Financing of fees or charges. In making a high-cost home loan, no lender may directly or indirectly finance any of the following:

AB991,12,6 (a) Prepayment fees or penalties payable by the customer, if the loan refinances an existing loan held by the lender or an affiliate of the lender.

AB991,12,7 (b) Points and fees.

AB991,12,8 (c) Any charges payable to persons other than the lender.

AB991,12,12 (10) Points and fees in refinancing transactions. No lender may charge a customer points and fees in connection with a high-cost home loan if the proceeds of the high-cost home loan are used to refinance an existing high-cost home loan held by the same lender.

AB991,12,20 (11) Payments to home improvement contractors. No lender under a high-cost home loan made to a customer may pay proceeds of the loan to a person who is under contract to complete a remodeling or other home improvement project with regard to an existing building affixed to real estate, unless the payment is made by an instrument that is payable to the customer or jointly to the customer and the person who is under contract or, with the consent of the customer, the payment is made through a 3rd party in accordance with a written agreement that is signed by the customer, the lender, and the person under contract before the payment is made.

AB991,12,23 (12) Evasion. (a) No lender may structure a loan transaction as an open-end credit plan for the purpose of evading the provisions of this section if the loan would have been a high-cost home loan had the loan been structured as a closed-end loan.

AB991,12,25 (b) No lender may divide a loan transaction into separate parts for the purpose of evading the provisions of this section.

AB991,13,2 (c) No lender may engage in any other acts of subterfuge for the purpose of evading the provisions of this section.

AB991,13,6 (13) Insurance. No lender may make a high-cost home loan to a customer that finances premiums for credit life, credit disability, or credit unemployment insurance or any other life or health insurance, except if the premium is required to be paid monthly.

AB991,13,9 (14) Flipping. No lender may make a high-cost home loan that refinances an existing high-cost home loan, unless the new high-cost home loan provides a reasonable, tangible net benefit to the customer considering all of the circumstances.

AB991,13,12 (15) Recommendation of default. No lender may recommend that a customer default, or encourage a customer to default, on a loan before and in connection with the closing or planned closing of a high-cost home loan.

AB991,13,16 428.203 Remedies. (1) Cause of action. Except as provided in sub. (5), an obligor under a high-cost home loan, may bring an action to enforce any requirement or prohibition under this subchapter. Except as provided in sub. (5), any requirement or prohibition under this subchapter is enforceable by class action under s. 803.08.

AB991,13,19 (2) Remedies. (a) Except as provided in s. 428.205, a person who violates this subchapter is liable to the person who commences an action under sub. (1) in an amount equal to the total of the following:

AB991,13,21 1. Twice the amount of interest paid under the applicable high-cost home loan, plus an amount equal to the total of all interest remaining under the loan.

AB991,13,23 2. The actual damages, including any incidental and consequential damages, sustained by the person commencing the action as a result of the violation.

AB991,14,5 (b) If a person prevails in an action under sub. (1), the person shall recover the aggregate amount of costs and expenses determined by the court to have been reasonably incurred on the person's behalf in connection with the prosecution of the action, together with a reasonable amount for attorney fees. The award of attorney fees shall be in an amount sufficient to compensate the attorneys representing the person. In determining the amount of the award, the court may consider any of the following:

AB991,14,7 1. The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite properly to conduct the cause.

AB991,14,8 2. The customary charges of the bar for similar services.

AB991,14,10 3. The amount involved in the controversy and the benefits resulting to the client or clients from the services.

AB991,14,11 4. The contingency or the certainty of the compensation.

AB991,14,13 5. The amount of the costs and expenses reasonably advanced by the attorney in the prosecution of the action.

AB991,14,15 (c) Except as provided in s. 428.205, in addition to the remedies provided under pars. (a) and (b), the following remedies are available in any action under sub. (1):

AB991,14,16 1. Injunctive relief.

AB991,14,17 2. Declaratory relief.

AB991,14,18 3. Punitive damages under s. 895.85.

AB991,14,20 (3) Unenforceable provisions, etc. Any act that violates this subchapter confers no rights or obligations enforceable by action.

AB991,14,23 (4) Statute of limitations. An action under sub. (1) shall be commenced at any time during the term of the high-cost home loan or within 6 years after the cause of action accrues, whichever is later.

AB991,15,2 (5) Rule of construction. This section shall be liberally construed to the end that any aggrieved party is put in at least as good a position as if the person committing the violation had fully complied with this subchapter. The remedies provided under this section are in addition to any other remedies provided by law.

AB991,15,6 428.204 Administration and civil penalty. (1) Rules. The department shall administer this subchapter. The department may promulgate rules for the administration of this subchapter. The rules shall include a method pursuant to which the department certifies counselors for purposes of s. 428.202 (7).

AB991,15,10 (2) Review of act, practice, procedure, or form. Upon the request of any person, the department shall review any act, practice, procedure, or form that has been submitted to the department in writing to determine whether the act, practice, procedure, or form is consistent with this subchapter.

AB991,15,23 (3) Investigations. (a) At any time that the department has reason to believe that a person has engaged in or is about to engage in an act that violates this subchapter, the department may investigate. In performing an investigation under this paragraph, the department may administer oaths or affirmations, subpoena witnesses, compel their attendance, adduce evidence, and require the production of any matter, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things, and the identity and location of persons having knowledge of relevant facts, or any other matter reasonably calculated to lead to the discovery of admissible evidence. The department may access and examine such books, documents, or other tangible things. In any civil action brought on behalf of the department based on evidence obtained in such an investigation, the department may recover the costs of performing the investigation if the department prevails in the action.

AB991,16,3 (b) If 5 or more persons file a verified complaint with the department alleging that a person has violated this subchapter, the department shall immediately commence an investigation pursuant to par. (a).

AB991,16,10 (c) If the records of a person who is subject to an investigation pursuant to par. (a) are located outside of this state, the person at the person's option shall either make them available to the department at a convenient location within this state or pay the reasonable and necessary expenses for the department to examine them at the place where they are located. The department may designate representatives, including comparable officials of the state in which the records are located, to inspect them on the department's behalf.

AB991,16,14 (d) At the request of the department and upon reasonable notice to all affected persons, the department of justice may apply to any court of record for an order compelling compliance if a person fails to obey a subpoena or to give testimony pursuant to par. (a).

AB991,17,2 (4) Enforcement and civil penalty. (a) The department may serve a notice of a hearing that complies with s. 227.44 (1) and (2) on a person if the department reasonably suspects that the person has violated this subchapter. The department may receive complaints alleging violations of this subchapter. A hearing conducted pursuant to a notice under this paragraph shall be conducted in the manner specified for a contested case, as defined in s. 227.01 (3), under ss. 227.44 to 227.50. If the person fails to appear at the hearing or if upon the record made at the hearing the department finds that a violation has been established, the department may issue and serve on the person an order to cease and desist from the violation or practice. Subject to s. 428.205, the order may require the person to correct the conditions resulting from the violation or practice and to forfeit not more than $5,000 per violation. The order is effective upon service on the person and may be appealed under s. 220.035.

AB991,17,7 (b) Subject to s. 428.205, the department of justice may bring an action to enforce this subchapter and, in any such action, any person who is found to have violated this subchapter may be required to forfeit not more than $5,000 per violation. The department of justice, at the request of the department, may bring an action to enforce an order issued under par. (a).

AB991,17,10 428.205 Affirmative defenses. It is a defense to any alleged violation of this subchapter if the person alleged to have committed the violation establishes any of the following:

AB991,17,17 (1) That the person acted in good faith while committing the violation and that, no later than 30 days after consummation of the loan and before any investigation or other enforcement action by the department under this section, the person notified the affected customer of the violation, made appropriate restitution, and made necessary adjustments to the loan so that the loan, at the option of the customer, satisfies the requirements of this subchapter or is changed in a manner beneficial to the customer so that the loan is no longer a high-cost home loan.

AB991,18,4 (2) That the violation was unintentional and resulted from a clerical, calculation, computer malfunction and programming, printing, or any other bona fide error, notwithstanding the maintenance of procedures reasonably adopted to avoid such errors, and that within 60 days after the discovery of the violation and prior to the institution of any action under this subchapter or the receipt of written notice of the violation the lender notified the affected customer of the violation, made appropriate restitution, and made necessary adjustments to the loan so that the loan, at the option of the customer, satisfies the requirements of this subchapter or is changed in a manner beneficial to the customer so that the loan is no longer a high-cost home loan. An error of legal judgment with respect to a person's obligations under this subchapter is not a bona fide error for purposes of this subsection.

AB991, s. 10 Section 10. Initial applicability.

AB991,18,8 (1) This act first applies to high-cost home loans, as defined in section 428.201 (5) of the statutes, as created by this act, under subchapter II of chapter 428 of the statutes, as created by this act, made on the effective date of this subsection.

AB991,18,9 (End)